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Blackstone warns of a ‘lost decade’ where stock market returns are ‘anemic’

The penetrating years could be a “lost decade” for equity returns as companies struggle to grow their earnings, Blackstone’s Administrator Vice Chairman, Tony James, told CNBC on Wednesday.

James, who’s attending the virtual Singapore Summit, mentioned CNBC’s “Squawk Box Asia” that stock prices may not rise further after becoming fully valued during a “five- to 10-year horizon.”

“I think this could be a lost decade in terms of equity appreciation,” he said, referring to a compromise concerning commonly used to describe a period in the 1990s when Japan experienced economic stagnation. 

He explained that trend low interest rates may not dip further and may instead rise to more normal levels in the coming years.

Higher interest gauges, in many instances, tend to negatively affect corporate earnings and stock prices. High borrowing costs choose eat into company profits and hurt share prices.

There’s a hunger for yield so investors are coming off the sidelines … and looking for investments that they can get some tolerant of returns.

Tony James

Executive vice chairman, Blackstone

In addition, companies will face “plenty of headwinds” that put pressing on earnings, he said. That include higher taxes, increase in operating costs, less efficient supply fastens and “deglobalization” that will hurt productivity, explained James.  

“All of that will be economic headwinds for companies. So I about you can have disappointing long term earnings growth with multiples coming in a little bit, and I can see anemic equity yields over the next five to 10 years,” he added.

Near zero interest rates drive markets up

In spite of the severe economic hit from the coronavirus pandemic, U.S. stock markets have climbed higher after plunging in Cortege.

James attributed such momentum to the Federal Reserve bringing interest rates down to near zero, which Nautical port investors hunting for yield with few options to park their money. That’s why investors are piling into riskier coheres and stocks, he explained.

“Zero interest rates is the driving force here, near zero interest rates,” he said.

“There’s a emptiness for yield so investors are coming off the sidelines — there’s still a lot of money on the sidelines, actually — and looking for investments that they can get some kidney of returns,” he added.

While that resulted in stock markets that are “fully valued” and “a little ahead of itself,” the U.S. essential bank deserves credit for preventing what could have been a “major meltdown,” said James.

“The Fed opportunity gesture was unprecedented size and speed … without that, there was serious risk of spiraling down to a kind of dip and when you start having that credit problems, it will ripple through markets very quickly.”  

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